Originally Posted by mispoken

Your math is correct;

the difference in price of the underlying and the strike is the part of the value. I’m not sure where they get their math, but it’s an incomplete example. Their example assumes the contract is held to expiration and only takes into account what is called intrinsic value. Example;

You buy a $30 call on DAL and the price goes to $40. Intrinsic value is $10 and your profit is the $10 minus the premium you paid.

HOWEVER; if it is not expiration day for the contract, let’s say 30 days before it expires, the contract is worth $15. Why? The extra $5 is EXTRINSIC value. Extrinsic value gets a little complicated (this is where the black sholes model comes in) but suffice to say the extra $5 in premium is made up mainly of time value and volatility premium. Let’s say 30 days of time is worth $4 and the other $1 is due to inherent volatility in the underlying and market in general. Extrinsic value is finicky, and you don’t need to dig too far into the weeds with it. Main point is that the premium is intrinsic value+extrinsic value.